“Newspapers Never Made Much Money From News”

Posted on March 11, 2010 
Filed Under Journalism, Social Media

“People who visit the auto page are interested in autos. But what ad do you show next to an earthquake story?” Hal Varian, Google Chief Economist.

Hal Varian shares some sober reasoning on why the newspaper industry is in the doldrums. From his blogpost:

The news industry’s financial problems started well before the web came along. Circulation has been falling since 1985 and circulation per household has been falling since 1947! Ad revenue for newspapers was roughly constant in real terms up until 2005, and ad revenue per reader actually increased up until that time. Since then, the drop in advertising rates due to the recession, coupled with a significant drop in circulation, has exacerbated newspapers’ financial difficulties.

In the last five years many more people have been reading the news online: About 40% of internet users say they looked at online news “yesterday.” Higher income households report even larger numbers, making online news readers a potentially attractive audience for advertisers.

However, visitors to online newspaper sites don’t spend a lot of time there. The average amount of time looking at online news is about 70 seconds a day, while the average amount of time spent reading the physical newspaper is about 25 minutes a day. Not surprisingly, advertisers are willing to pay more for their share of readers’ attention during that 25 minutes of offline reading than during the 70 seconds of online reading. So even though online advertising has grown rapidly in the last five years, it appears that somewhat less than 5% of newspapers’ ad revenue comes from their internet editions, according to the most recent Newspaper Association of America data.

There’s a reason for the relatively short time readers spend on online news: a disproportionate amount of online news reading occurs during working hours. The good news is that newspapers can now reach readers at work, which was difficult prior to the internet. The bad news is that readers don’t have a lot of time to devote to news when they are supposed to be working. Online news reading is predominately a labor time activity while offline news reading is primarily a leisure time activity. One of the big challenges facing the news industry is increasing involvement with the news during leisure hours, when readers have more time to look at both news content and ads.

What about search engines? Many readers go directly to their favorite news site, but a good fraction use search engines to access news specific news topics. According to comScore, clicks from search engines account for 35-40% of traffic to major U.S. news sites. Since most newspaper ads are priced on a per-impression basis, this means that 35-40% of major U.S. newspaper online revenue is coming from search engine referrals. That is a big fraction of online advertising revenue but, as we saw above, online ad revenue is only about 5% of the total.

Furthermore, the real money in search engine advertising is in the highly commercial verticals like Shopping, Health, and Travel. Unfortunately, most of the search clicks that go to newspapers are in categories like Sports, News & Current Events, and Local, which don’t attract the biggest spending advertisers.

This isn’t so surprising: the fact of the matter is that newspapers have never made much money from news. They’ve made money from the special interest sections on topics such as Automotive, Travel, Home & Garden, Food & Drink, and so on. These sections attract contextually targeted advertising, which is much more effective than non-targeted advertising. After all, someone reading the Automotive section is likely to be more interested in cars than the average consumer, so advertisers will pay a premium to reach those consumers.

Traditionally, the ad revenue from these special sections has been used to cross-subsidize the core news production. Nowadays internet users go directly to websites like Edmunds, Orbitz, Epicurious, and Amazon to look for products and services in specialized areas. Not surprisingly, advertisers follow those eyeballs, which makes the traditional cross-subsidization model that newspapers have used far more difficult.

Some have argued that the solution to the financial problems of newspapers is to charge for access. Many people place a high value on news, and there is clearly a significant social value to having a well informed citizenry. The problem is that there is a lot of competition among news providers, and this competition tends to push prices down. News sources that have highly differentiated content may be able to make pay-for-access work, but this will likely to be difficult for more generic news sources.

In my view, the best thing that newspapers can do now is experiment, experiment, experiment. There are huge cost savings associated with online news. Roughly 50% of the cost of producing a physical newspaper is in printing and distribution, with only about 15% of total costs being editorial. Newspapers could save a lot of money if the primary access to news was via the internet.

New tablet computers like the Kindle, iPad, and Android devices may encourage people to read online news at home in the comfort of their easy chairs.

LINKS:
1. Hal Varian presentation on Scribd
2.TechCrunch summary.
3. Martin Langeveld summary at Nieman Journalism Lab.

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